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ECONOMY | 20-07-2020 23:50

Debt deal at impasse as creditors unite to reject government's offer

Three groups of creditors announce they have rejected Argentina's proposal to restructure US$66 billion of debt and delivered a counter offer to government – which President Alberto Fernández promptly dismisses out of hand.

Argentina's hopes of restructuring more than US$66 billion look to have hit a wall on Monday after dramatic few hours.

Three groups of creditors joined forces to reject the government's self-described "final" offer, before submitting their own counter proposal. Just hours on, however, President Alberto Fernández immediately dismissed that new proposal, leaving talks all but at a standstill.

"It is impossible for us to move from the last offer," Fernández said in a statement delivered on TV Pública, reiterating that the government's offer was its "final" one.

“We want to act in good faith and find a solution,” he added. “We’ll continue discussing, but the truth is that we’ve made the offer that is possible.”

"We have made a possible offer and it is impossible for us to move from this last effort, which is a very, very big effort," said the Peronist leader.

"Making a better offer is already starting to put tomorrow at risk. What I am looking for is for Argentina to solve a problem so that it does not have to continue arguing with creditors."

Argentina's last offer, issued under foreign law, was worth 53.5 cents on the dollar, a significant improvement on its original starting position of 39 cents.

Having originally proposed a three-year grace period, the offer reduced that to one year, with repayments beginning in September 2021.

Creditors' groups, however, dismissed the idea that there wasn't more room for negotiation. "Argentina's offer is short of what the creditor groups can accept," they said in a statement, adding that they would not meet the government's August 4 deadline to find an agreement.

However, the new group expressed confidence that an "agreed solution" could be found that ensures "the future economic sustainability for the Argentine people."

The three groups – Ad Hoc group, the Exchange Bondholder group and the Argentina Creditor Committee – claim to represent a third of bondholders under foreign law involved in the restructure talks. That gives the groups veto power over any restructure deal, experts say.

President Fernández is due to address a Council of the Americas webcast on Tuesday, an event which will now be watched even more closely.

'Very difficult'

The Argentina Creditor Committee had seemed more disposed to accepting the government's offer, but in joining the other two groups, "they are practically in a position to block the whole deal," economist Sebastian Maril told AFP. "And if they work together, as one, it's going to be very difficult for Argentina to reach an agreement."

The groups did not divulge any details about their counter-offer, but sources close to the negotiation said it represents 56.6 cents on the dollar with the new bonds beginning to accrue interest from September this year. Bloomberg reported that the groups were proposing cash-flow relief in excess of US$35 billion over a period of nine years using the same 10 bonds in Argentina’s latest amended exchange offer.

The groups said their offer would give Argentina relief to its urgent needs, access to capital markets and the legal framework necessary to attract investors.

The bonds represent roughly a fifth of the country's US$324 billion debt, which amounts to around 90 percent of its GDP.

Economy Minister Martín Guzmán said in a statement that the creditors had "a lack of understanding about the restrictions Argentina faces." 

"Here there is a country, here there are families, there are people. Accepting what some creditors ask for would mean subjecting Argentine society to more anguish, it would imply, for example, adjusting pensions, and we will not do it. We continue to hope that good faith prevails for part of the creditors," he said.

In recession since 2018, the Argentine economy has been further punished by the coronavirus pandemic. The International Monetary Fund estimates it will contract by 9.9 percent this year.

With the backing of the IMF, Fernández has insisted that any deal with creditors be sustainable so that the country can meet its obligations over the long term.

But Argentina has been in default – for the ninth time in its history – since May 22 when the country missed a deadline to pay US$500 million in interest on the debt that is subject to the current negotiation.


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